FLIGHT International. 13 August 1970 227
Second force under way
-'Last week's long-awaited Government statement was the starting signal for
preparations to form a third, private-enterprise, flag airline along lines suggested by
the Edwards Committee. But it did not come without controversy as to the rights
and wrongs of removing routes from the State corporations to get the new airline
going. DAVID WOOLLEY reports.
THE BRITISH GOVERNMENT'S GO-AHEAD for the second-force airline, the private-enterprise national carrier envisaged by the Edwards Committee, was given on August 3 (as
briefly reported in Flight last week). The plan, which envisages
the transfer from BOAC to the new airline of routes producing
revenue of £5-6 million, immediately ran into criticism, not
only from BOAC but also from BEA (which could also be
affected) and in particular from the trade unions. Union
leaders condemned the proposal to remove any routes from
the public sector, and said that they were not satisfied that
the airline would be controlled by British interests.
The two airlines expressly envisaged by the Government as
the foundation of the second force are of course Caledonian
Airways and British United Airways. The formation of the
airline, which is as yet un-named, is a commercial matter
between the two of them now that the Government has made
jts position clear; but it was not until the official statement had
oeen made that Caledonian was prepared to proceed with its
bid to take over BUA. The airline felt that a concrete assur
ance had to be obtained before its backers could be formally
approached with a view to putting up the finance; but it gave
an undertaking to the Board of Trade that, once the state
ment had been made, a bid for BUA would be made.
No sooner had the Board of Trade delivered Monday's
statement than Caledonian acted to set negotiations in train.
On Tuesday the airline's chairman, Mr Adam Thomson, met
shareholders and obtained a mandate to proceed with a bid.
On Wednesday he approached Sir Nicholas Cayzer, chairman
of British & Commonwealth Shipping, which owns a 90.8 per
cent share of BUA, and they agreed to begin meetings on
Thursday. Mr Thomson also met representatives of the trade
union side of the National Joint Council for Civil Aviation to
discuss their attitude towards the second force. On Thursday
meetings between Caledonian and B&C, with financial advisers
present, began.
Both sides evidently want a speedy conclusion to the talks.
B&C remains anxious to sell BUA, and must now recognise
that, in view of the Government statement, it cannot rely on
its original plan of selling the airline to BOAC (the sale was
blocked by the Labour Government to allow negotiations over
the second force to proceed, and is now not likely to be
unfrozen by the present Government). Moreover, B&C is not
anxious to be a participant in the ownership of the new air
line, the scale of which is likely to be far smaller than that
originally envisaged by B&C as a minimum to warrant con
tinued and increased investment.
B&C's willingness to bargain with Caletfonian will there
fore have increased considerably in recent weeks. In particular
BUA is suffering from the prolonged state of uncertainty as
to its future, and its managing director, Mr Alan Bristow, was
saying two weeks ago that it would have to go into liquida
tion rather than face the then threatened strike. In the circum
stances it is reasonable to assume that the price of BUA will
have fallen from the £7 million minimum (excluding goodwill)
at which it stood when B&C first opened the bidding in April.
It is understood that the price previously agreed with BOAC
had been £9 million including goodwill. The figures mentioned
refer to the cash payment involved; there are in addition
liabilities connected with the BUA aircraft fleet, much of
which is leased; these could involve a further £25 million or
more.
The Government's object in transferring routes to the new
airline is to provide it with a sufficient base at the outset on
which to build in the future. The President of the BoT, Mr
Michael Noble, made it clear last week that it would be a
"once-only" transfer, and that the new airline could not
expect to come back for further assistance. The move was first
suggested by the Edwards Committee, which is understood to
have envisaged quite a small transfer—of BOAC's South
American routes to Caracas, Bogota and Lima—but which
did not spell this out in its report. The Labour Government
in its White Paper rejected "any significant transfer" of the
corporations' routes. Mr Noble said that the figure of 2|-3 per
cent of BOAC's revenue was that put forward by Caledonian
as the minimum needed to ensure a firm base for the second-
force airline's development. The Government feels that the
figure is small enough to avoid any lasting damage to BOAC.
and stresses that the actual choice of routes must be made
with regard to the least possible harm to BOAC and the
maximum benefit to the second force.
BEA has not so far been mentioned by the BoT in this
connection, but some participation in the route transfer is not
ruled out. In addition the corporation is affected by mention
in the Government statement that frequency restrictions on
domestic routes, now applied to BEA's competitors, will be
progressively relaxed.
Both corporations have shown a hostile reaction to the
notion of transfer of any of their routes. BOAC said in a
statement that it was adopting a "strictly commercial"
approach to the matter, and was "unwilling" to give up any
routes voluntarily; if compelled, however, the corporation
said that it would have to observe the law of the land. BEA
issued a similar statement, saying that it would not willingly
countenance the handover of any of its routes.
Mr Noble said last week that the question of reallocation
of routes would be discussed in talks between Caledonian.
BOAC and the Board of Trade. He pointed out that the powers
to compel the transaction had been in existence, unused, for
many years. He indicated that he did not think things would
come to a show-down with the corporations; the chairmen,
after all, he said, were "adult, sensible people." Regulations
will be needed to implement the transfer, and these will be
laid before Parliament when it resumes after the summer recess.
A show-down with the Government is unlikely. In a radio
interview last week Mr Keith Granville, BOAC managing
director, seemed to be taking a moderate line. Asked if
BOAC would be seriously hurt by the arrangement, he said
that "hurt" might be an overstatement. Only "a very small
percentage of BOAC's operations" would be affected. "If the
Government wishes to make this kind of change in the civil
aviation scene," he added, "it's entirely up to them."
Corporation spokesmen are at present unwilling to comment
on whether or not compensation for the loss of the routes
will be sought. BOAC said last week that the question would
arise at a later stage in negotiations. The Government does
not however intend to offer any direct compensation, on the
grounds that the right to operate a route is not an asset
capable of being bought or sold, and to compensate directly
for depriving an airline of a route might create a dangerous
precedent. But, as Mr Noble pointed out last week, the
Government would consider amending a corporation's target
for rate of return on capital in the light of experience. Such
a revision would in fact be tantamount to compensation.
The powers which the Government proposes to use are